Question

18. How does the price of goods affect decisions to trade or not trade?

Answer 1

Answer:

The price of goods affects decisions to trade or not trade in two ways: directly and indirectly.

Explanation:

The direct effect is that, when the price of a good increases, the value of the good to the buyer decreases while it becomes more valuable to the seller; thus buyers are less willing to buy and sellers are more willing to sell. The inverse happens when the price of a good decreases.

Indirectly, the effect is that when the price of a good increases, so does the value of currency; thus as it becomes more valuable to sell than buy, traders will not want to buy as much currency and sellers will not want to sell as much. As such, less currency will be exchanged in the market.

The opposite happens with a decrease in price.